To get any loan, you need a good credit score to get the most favorable terms. Around 21 percent of Americans fall in the subprime range. Where do you stand?
If you’re struggling with your credit score, don’t worry! These 5 simple tips for fixing your credit will help you get on your way to financial security.
1. Get a Copy of Your Credit Report
To get started, you need to get a copy of your credit report. Don’t worry—you are entitled to get a free copy each year at AnnualCreditReport.com, which is a safe, government-owned site.
Look over your report to check for any errors. Check if you recognize all the accounts, if your contact information is current, and if balances are correct. Errors on your credit report can be fixed.
This also lets you see what areas you can improve. Your credit score is determined by:
- Timely payments
- Amount you owe
- Length of your credit history
- New credit inquiries
- Mix of credit used
All of these factors determine that score with the biggest factors being your payment history and amounts you owe.
2. Keep Balances Down
It’s important to reduce the amount you owe. Your credit utilization ratio takes into account your credit limit divided by what you owe. Most lenders want this to be below 30 percent to get the best loans.
If you have some credit card debt, work on a plan to get the amount down. Stop using credit cards, focus on paying off one card, and make extra payments to eliminate balances.
3. Leave Accounts Open
If you have accounts open you no longer use, do not close them. This helps your credit utilization ratio because you don’t have a balance. These old accounts could also help your credit history age.
4. Get a Credit Mix
You don’t want to apply for too many accounts because that could hurt your score. But, you do need a credit mix.
If you don’t have a credit card, you should open a new account. Use it to make small purchases and make sure you pay it on time and pay it off each month. This shows that you can handle multiple types of credit responsibly.
Check out this site for credit card options if you have fair credit.
5. Pay Your Bills on Time
This is probably the most important way to improve your credit. The largest part of your credit score is your payment history, so it is imperative you pay all of your bills on time, including loans, rent, credit cards, and utilities.
If you can’t remember to pay your bills before the due date, set up automatic payments or keep a calendar to show when your bills are due. You can also sign-up for payment reminders, so you get a text or e-mail close a few days before the due date.
If you miss a payment due date, pay as soon as possible. Most lenders will not report late payments unless it is 30 days past due, but don’t wait to pay. You want to stay ahead of your bills to improve your score.
Fixing Your Credit – Final Thoughts
Fixing your credit can take time, but if you pay your bills on time, limit your credit applications, and pay down your debt, your score will surely improve over time.
Check out my blog for other financial tips. Look for articles like how to prepare yourself financially for the future.